April 12 (Bloomberg) -- After last year’s massive security
breaches at Target Corp. and Neiman Marcus Group LLC, data-security professionals urged U.S. retailers to upgrade their
credit and debit card technology to reduce fraud.

Companies have been slow to embrace the more secure payment
systems that have been widely used in Europe and Asia for years,
mostly because of the expense and a lack of synchronization
among retailers, credit card providers, and banks, Bloomberg
Businessweek reports in its April 14 edition.

Many companies are behind schedule in updating their
systems to comply with a chip-based smart card standard known as
EMV (for Europay-MasterCard-Visa, the companies that first
backed the technology). Credit card networks have set an October
2015 deadline for most U.S. merchants to upgrade their payment
systems.

EMV is considered more secure because it’s harder to copy
account numbers and security codes from chips than from the
magnetic strips on most cards used in the U.S. EMV cards create
a unique code for each transaction, making them more difficult
to hack or counterfeit than striped cards.

Merchant Warehouse, which processes credit and debit card
transactions for 80,000 U.S. merchants, projects that only about
60 percent of its clients’ locations will be ready to accept
chip-based cards by the deadline. More than half of U.S.
merchants will miss the cutoff, said Richard Crone, chief
executive officer of payments advisory firm Crone Consulting.

Upgrade Cost

One reason for the delay is the upgrade’s high cost: $500
to $1,000 per payment terminal, according to researcher Javelin
Strategy & Research, a division of Greenwich Associates.
Retailers are also concerned that the switch will slow checkout
times and that it remains unclear how the EMV software will work
with debit cards.

“It is not a question of just turning it on,” said
Margaret Chabris, a spokeswoman for 7-Eleven Inc. “EMV
specifications are still being finalized.”

Some of the biggest laggards are grocery stores and quick-service restaurants, many of which have to change entire payment
processes in addition to technology, Crone said. Using a credit
card at a drive-in or at a dining table is different when a PIN
number has to be entered, he said, though not all EMV
transactions require a PIN.

Some big retailers, including Wal-Mart Stores Inc., Kroger
Co. and Target, have pushed ahead with the upgrade. Wal-Mart
started updating its payment terminals in U.S. stores eight
years ago. The company says it has progressed slowly because of
a lack of industry support, despite the clear benefits.

“We saw the fact that it was being implemented in the U.K.
and many other countries around the globe; we saw the fraud
decrease once this solution was implemented,” said Mike Cook,
assistant treasurer at Wal-Mart.

Activating Early

All of Wal-Mart’s 4,838 U.S. stores, including Sam’s Clubs,
have the chip-based hardware in place. Of those, 1,000 have
turned it on. By the end of this year, the company plans to have
the new payment terminals running in all U.S. locations.

“We want to activate early if there are any problems or
bugs to be worked out,” Cook said.

Kroger expects to be ready by the deadline after working
for the past two years to incorporate the new technology, said
Keith Dailey, a company spokesman.

“We believe chip-and-PIN is a good solution because it
creates several additional layers of security without
sacrificing customer convenience,” Dailey said. “That’s not to
say this conversion can be accomplished with a simple flip of
the switch. This will be a major effort to overhaul the entire
payment processing infrastructure, which includes banks, credit
card issuers and payment processors in addition to retailers.”

Customers’ Cards

For terminals to provide added security, customers must
have chip-enabled cards.

“Part of the reason we haven’t pushed faster is there’re
just no cards out there for acceptance,” said Wal-Mart’s Cook.

Today, with about 1 billion cards in use in the U.S., just
20 million chip cards have been issued, according to Smart Card
Alliance. Only 20 percent to 30 percent of U.S. cardholders will
have the new cards by the deadline, said Nick Holland, an
analyst at Javelin.

The new cards can cost as much as $2 each, compared with
pennies for the magnetic-stripe models.

“We’ve got 10 million cards in inventory out in the
field,” said Mark Putman, a senior vice president for First
Data Corp., which offers prepaid card services. “At $2, we are
probably looking at a $20 million investment, which I am going
to defer for as long as possible.”

High Price

While retailers are willing to do their part to improve
security, banks and card companies also have a responsibility to
update their systems, according to the National Retail
Federation. That includes making and issuing chip-enabled cards.

The price for not complying could be high. Credit card
companies have said most retailers and banks will be liable for
some fraudulent in-store transactions if they don’t have the new
system.

Even that potential liability hasn’t been enough to light a
fire under many retailers, said Julie Conroy, an analyst at Aite
Group.

“Merchants aren’t crazy about this migration to EMV,” she
said. “Many of them are fighting it tooth and nail.”